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Estate Planning Attorneys, Tucson, Arizona
Living Trusts
A living trust, like a Will,
indicates how you would like your assets managed and distributed upon your
death. But a living trust, unlike a Will, also directs how your assets
should be managed if you become disabled.
The terminology is a little tricky at first, but
understanding a few of the key definitions will go a long way in clarifying
just what is involved.
A
living trust is an agreement between the maker of the
trust, or Trustmaker,
and the
Trustee, who is agreeing to be in charge of managing the
trust. The trust agreement is for the benefit of certain
beneficiaries--which simply refers to the people or entities
who get the right to enjoy the
trust property
either now or at some point in the future. The trust property refers
to those assets that the Trustmaker places into the trust, such as bank
accounts and real estate. Placing the assets into the trust is called
funding the trust.
 So,
who acts as a Trustmaker, Trustee and beneficiary? Typically, with a
living trust, you, or you and your spouse, initially will wear all three hats
when you set up the trust. In other words, during your life you are the
Trustmaker and you are the initial Trustee of the trust. Also, you will be
the trust's life beneficiary--the person who enjoys the use of the trust
property.
Because you are wearing all the hats, you have complete
control over the property in the trust during your life. You can buy, sell
or gift the trust property, and you will file tax returns in the same way you
always have. And, importantly, in general you can amend or revoke the
trust at any time.
It is not until after your death, or after the death of the
second spouse to die, that the trust assets will pass to other named
beneficiaries.
Avoiding Probate and Conservatorship
One of the most frequently cited reasons for having a living trust is to avoid
probate upon death. Probate is a process done in probate court that serves
to transfer the assets of a deceased person to his or her beneficiaries under
the Will, or heirs if there is no Will. The court determines whether the
person's Will is valid, and if so a Personal Representative, or executor, is
appointed by the court.
What many
people may not realize is that a similar procedure also may occur during life,
if a person becomes disabled. The procedure is called a conservatorship
and results when the owner of property no longer has capacity to manage the
property. In this case, the court is called upon to appoint someone to
manage the property.
This
concept takes on more relevance when you consider that a person is four to
six times more likely to become incapacitated than they are to die in the
next year, according to "21st Century Wealth: Essential Financial
Planning Principals" (Quantum Press LLC 2000).
The cost of probate varies from state
to state. In Arizona the cost generally depends on the complexity and size
of a person's estate.
Assets that are in a living trust do
not go through a probate process--which means that if all of your assets are
placed into the living trust during your life, there will be no probate upon
your death. Just as important, when you have a fully funded trust, there
will be no need for conservatorship if you become disabled. Court
involvement is replaced with a smooth transition to a successor trustee who
manages your assets when you're no longer able to do so.
What's more, if you own property in two
or more states, all of those properties can be funded into the same trust.
If you use only a Will, it is possible that there would
be a probate in each state in which you owned property.
There also may be tax advantages to
establishing a living trust. Currently, the amount of a trust estate
exempt from tax is $2 million per individual. For a couple, setting up a
joint living trust effectively allows both spouses to use this exemption,
sheltering a total of $4 million from tax.
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